SMSF – is it right for you?

Posted by Northadvisory on March 2, 2021

According to the ATO’s 2020 statistics, more than 1.1 million Australians are members of self-managed super funds (SMSF), and that number is steadily increasing.

For many people, an SMSF is a great way to take control of their retirement savings, especially if they have the time and capability to oversee the fund’s management. But there are considerations that need to be taken into account when you are thinking about setting one up for yourself.

Today we look at SMSFs in more detail and ask the question – is an SMSF right for you?

What is an SMSF?

A self-managed super fund is exactly that… a super fund that is managed by you – its members. It is unlike a standard industry or retail fund where the provider oversees the management of your superannuation. Instead, you are in control of how your money is invested.

Within standard fund management, you are usually offered a choice between basic investment options such as high growth, balanced or stable… but you aren’t able to make specific selections around the individual investments. Plus, when you receive information from a retail or industry fund, it tends to be a general overview of how your allocation is divided across asset classes – for example Australian shares, international shares, property and cash.

With an SMSF, you choose exactly where you want your money invested and you also have a wider range of options available. For example, you could choose to invest in artwork or antiquities… areas that would never be on offer in other funds.

The ATO says,

“The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees. This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.”

An SMSF can have up to four members, who are usually family or close friends. They must all be trustees and are therefore equally responsible for decisions made relating to the fund. They are also equally responsible for ensuring the fund’s compliance with super and tax laws.

Active interest in your super

If you are considering an SMSF, you need to make sure that you have an active interest in your super. It will take time and energy to make decisions and maintain control of the fund… so before you jump in, it’s important that you are confident you have the motivation and dedication to commit.

The amount of time required will depend on the overall complexity of your investments, but an SMSF is certainly not just a ‘set and forget’ type of operation. Even with professional guidance, you and your SMSF partners will need to be involved in researching investment opportunities, developing investment strategies and meeting compliance requirements.

Legal and administrative responsibilities

In addition to being actively involved, it’s vital that you understand an SMSF trustee’s legal responsibilities. There are strict super and tax laws that must be adhered to, and failure to meet obligations relating to administration and compliance can result in significant financial penalties… or even disqualification as a trustee.

We recommend seeking professional advice to make sure you understand all the relevant SMSF obligations. A specialist SMSF advisor will be able to provide you with advice according to your personal circumstances, and you can then decide whether starting an SMSF is an appropriate choice.

Minimum balance and administrative costs

The amount of your superannuation balance is another factor you need to consider. A general rule is that an SMSF needs a starting balance of between $200,000 and $300,000, to be cost-effective. There will be initial establishment costs such as creating a trust deed, plus ongoing costs that relate to running the SMSF, including ATO fees, investment fees, tax returns and independent audits.

But once established, SMSFs typically have fixed administrative costs. This means as the fund’s balance increases, the expense associated with running the SMSF decreases as a proportion of the fund’s value.

Speak with a professional

It is critical that your superannuation is well looked after. In the words of Cayle Petritsch, Director and SMSF specialist:

“Super is most people’s second largest asset, after their home, so it’s really important to get the fund management right. At North Advisory, we love building long-term relationships with our clients and taking all the headaches out of managing their SMSFs.”

We have extensive experience in SMSF management and are here to help you determine whether it is the right choice for your personal financial situation. Contact us to learn more about how we can help you today.

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